The central bank is likely to raise its benchmark interest rates later this month -- marking the 14th quarterly increase since October 2004 -- to stem inflationary pressure, but an opposition lawmaker yesterday questioned the effect of a rate increase.
The central bank is scheduled to hold its quarterly board meeting on Dec. 20, with market observers predicting another 0.125 percentage point increase in the discount rate as higher food and oil prices fuel concerns of further inflation.
Chinese Nationalist Party (KMT) Legislator Lee Jih-chu (李紀珠) yesterday urged central bank Governor Perng Fai-nan (彭淮南) to take measures to counter the under-valuation of the NT dollar.
"The central bank shouldn't have used the nation's excessive [US$40 billion] capital outflow as an excuse to weaken the NT dollar's exchange rate [against the greenback]," Lee told Perng in private discussions after yesterday's legislative session.
She said domestic investors cared less about the NT dollar's exchange rate when investing in US dollar-denominated overseas funds or Chinese shares, which often guarantee a lucrative capital reward compared to any meager exchange losses.
Weakening the NT dollar will not be effective in curbing future capital outflows by a small minority of high-income earners, Lee said, but is instead likely to drive up domestic commodity prices since prices of imported goods are sure to go up.
By hiking interest rates, the government is unfairly leaving the general public with a relatively lower income against the backdrop of higher import prices and climbing rates, Lee said.
Another interest rate hike would tighten the monetary supply, which will contribute to financial woes for businesses with loans and hurt the local economy in the long run.
In response, Perng said the central bank would "prudently review the consequences of another interest rate hike," prompting speculation the consecutive hikes could come to an end.
Perng also rebutted reports that the central bank had intervened in the NT dollar's appreciation.
"The central bank will allow the market to decide the valuation" of the NT dollar, he said.
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